The US Government is almost about to hit the current debt Ceiling of $12.1 trillion dollars. Unless Congress authorizes to increase this debt Ceiling further, US Government will not be able to borrow more money to spend.
President Obama has been following the path of uncontrolled spending ever since he took office. As reported by Heritage Foundation, Obama has single handedly quadrupled the national deficit from 400 billion dollars by end of 2008 to 1.85 trillion dollars in 2009.
As reported by foxnews, Obama has shattered the “adjusted to inflation” budget record for first-year Presidents. Obama has spent nearly double of what George W Bush spent when he came into office, inflation adjusted. $3.52 trillion dollars so far has been spent by Obama in year 2009, far more than the first year spending of any other US President in history of America.
Simply put, Obama, just in 2009, has spent more money than all Presidents’ combined, from George Washington to George W Bush. Just in his first 6 months in office, he passed the huge 787 billion dollar stimulus plan, which didn’t create jobs, unlike what he promised. He spent 410 billion dollars on an omnibus bill. His budget amounted to a huge 3.5 trillion dollars for fiscal year 2010. And we don’t know yet how many trillions of dollars in damage would his healthcare plan add up to.
If this level of spending has to be continued by President Obama, we will hit the US Debt Ceiling soon enough, unless Congress acts to increase the debt ceiling further.
As reported by foxnews today, Democrats are proposing that we increase the US Debt Ceiling by yet another 2 trillion dollars, so that we will not hit the ceiling of $12.1 trillion next year, a Congressional election year.
Will the Congress analyze the consequences of increasing the Debt Ceiling and continuing our spending spree? They may not, but let us analyze the consequences:
When the Government doesn’t have a budget surplus, it has to sell what are called “Government Bonds”, to raise money. These are promissory notes to pay back the money at a later date to the buyer of the bonds at an attractive interest rate, in exchange for the money lent now. China is the biggest buyer of our Government bond’s as of now. The Chinese Government has lent us so much money in the past year; to the extent they practically own a good potion of our country now, thanks to our President.
But China is getting worried at our exploding debt levels. China is getting scared that they will not get their money back from us. They are getting worried that Barack Obama is spending beyond what our country can afford to repay. Chinese are worried that US may end up defaulting on the repayment to China, when the time for repayment comes. Chinese are getting nervous to lend us more money. At one point in time, they will stop lending us more money, and that time will come sooner than later.
If the Chinese do stop lending us more money, then we have one more option. Print money. Yes, our Federal Reserve can print the money needed to buy these “Government Bonds”. But printing more money is not good for the strength of the US Dollar. Economics 101 says: the more the money Federal Reserve Prints, the more the US Dollar will fall in value. When the US Dollar falls in value, businesses will be hurt big. The purchasing power of businesses, which import raw materials from overseas, will decline dramatically. The businesses will be forced to raise the price of good they manufacture and services they offer, to keep up with their increased manufacturing costs due to a falling dollar. This will drive inflation through the roof. Unable to financially cope up with the consequences of a falling dollar, businesses will find it tough to find the money to hire personnel. This will hurt jobs in the country, and will make unemployment skyrocket. This will be a vicious cycle, which will feed into itself, until inflation becomes “hyperinflation”. Economic growth would stagnate when it happens. The combination of inflation and stagnation of economic growth would lead to “Stagflation”, like in 1970’s, when our country was bleeding, till Ronald Reagan came to the rescue.
Let us hope, for the sake of our Country, Congress votes against this increase $2 trillion increase in national debt ceiling. Let us hope President Barack Obama stops his uncontrolled spending spree, for the sake of our great Country. Let us hope President Obama doesn’t put us on the road to stagflation.
Ref:
http://blog.heritage.org/2009/03/24/bush-deficit-vs-obama-deficit-in-pictures/
http://www.foxnews.com/politics/2009/11/24/obama-shatters-spending-record-year-presidents/?utm_campaign=Feed%253A+txdubp+(txdubp+News+Items)
http://www.foxnews.com/politics/2009/12/10/democrats-eyeing-elections-prepare-lift-federal-debt-ceiling/
Comments